Department of Labor Finalizes Overtime Rule, Impacting Municipal Budgets

By:

Stephanie Martinez-Ruckman

May 7, 2024 - (2 min read)

Last month, the U.S. Department of Labor released its final rule on overtime protections that increases the salary thresholds required to exempt a salaried bona fide executive, administrative, or professional employee from federal overtime pay requirements. This change will make millions of previously ineligible employees eligible for overtime pay, including many local government employees. This change will significantly impact local governments.

NLC has long advocated that any increase in overtime protections provide a phase-in approach to provide appropriate time for cities, towns and villages to plan for the financial impact of the increase, particularly for local governments with populations under 50,000.

Consistent with this advocacy, the final rule provides for increases in a phased-in, two-step approach and includes processes to update the threshold every three years.

The following outlines the timeline for these updates:

Effective July 1, 2024, the salary threshold will increase to the equivalent of an annual salary of $43,888, up from its current level of $35,568, based on the methodology used by the prior administration in the 2019 overtime rule update.
On Jan. 1, 2025, the rule’s new methodology takes effect, increasing the salary threshold to $58,656.
Starting July 1, 2027, salary thresholds will be updated every three years by applying up-to-date wage data to determine new salary levels.

Impact to Local Governments

Cities, towns and villages should begin to identify employees who will now fall within this updated rule’s impact. Those employees who are not exempt (meaning their salaries fall below the new thresholds) will receive time-and-a-half pay when working more than 40 hours in a week. Even with a phased-in approach, the new rule has an implementation timeline that will put a strain on local government budgets that have not accounted for this increase in their annual budgeting process.

It is very likely that this overtime rule will be challenged in court. While the outcome of such a challenge is uncertain, local governments should proceed with budgetary planning that assumes the final rule will be enforced.